IBM CEO Arvind Krishna watches a roundtable discussion hosted by President Donald Trump in the Roosevelt Room of the White House on December 10, 2025 in Washington.
Alex Wong | Getty Images
IBM CEO Arvind Krishna sought to reassure Wall Street after disappointing second-quarter results, saying only 2% of the company’s software will be replaced by applications built with artificial intelligence models.
“The rest of our software will really help people prepare for AI, unlocking data in real time, reducing the cost and complexity of management, and going through the hybrid infrastructure that most of our clients use,” Krishna said Thursday on CNBC’s “Squawk on the Street.” “And I believe that will be a tailwind for us because it will probably be called infrastructure software rather than applications.”
Wall Street has become skeptical of software stocks in recent years due to concerns that AI will disrupt business models as technologies such as Anthropic and OpenAI become more powerful. IBM’s stock price has fallen about 30% this year. iShares expands technology and software sector exchange-traded fund (IGV) It fell 17%.
In February, IBM stock fell 13% after Anthropic published a blog post about the ability of its Claude Code tool to modernize code written in Cobol, which is commonly found on mainframes.
Krishna told analysts Wednesday after the company’s earnings report that IBM’s current generation z17 mainframes faced challenges this quarter. Finance chief Jim Kavanaugh said some customers chose to spend money on other data center equipment, such as servers and storage, as AI chip requirements drove up memory prices.
For every $1 of revenue IBM generates from mainframe infrastructure, it earns $3 in software. Revenue from IBM’s Z mainframe business fell 42% in the quarter, as did transaction processing software, which fell 9%. This was a sudden change from the first quarter, when Z’s revenue increased 48% and transaction processing increased 2%.
During the June quarter, 45% of IBM’s revenue came from software, the company’s highest margin.
krishna said starbucks spends approximately $2 million annually on IBM software. He said coffee makers are pulling out Tririgga’s lease management software. IBM acquired Tririga in 2011 and plans to end support for it in 2027.
“This is a big part of the 2% that I talked about, and I think there is a risk with that kind of software,” he said. “By the way, they had software that was 10 years old.”
IBM stuck to its guidance of increasing free cash flow by $1 billion in 2026, but Kavanaugh said Wednesday that he expects software revenue to increase 6% to 8% that year. In January, he said he was confident growth would reach double digits.
Krishna said Thursday that mainframe hardware capabilities are increasing, which is also impacting software.
“The software on it tends to lag behind the capabilities of the hardware, but I think if you wait another year the software will catch up,” he said.
Mr. Krishna said about 75% of the business, which declined from the second quarter, should return to IBM by the end of the year.
Jefferies analysts said in a note to clients on Thursday that they “avoid a full assessment of the retained guide until the majority of the lost activity is reflected in the reported results.” They recommend buying stocks.
Spotlight: IBM CEO: Prices for many infrastructure components will rise significantly
